Margins being pushed to the wall
Growers of fresh produce say they are in a tricky situation with supermarkets that are pushing their margins to the limit.
There have been calls for horticulturists to pay workers more, to fix a labour shortage problem caused by the country’s closed borders.
But growers said the power and pressure on their businesses from supermarkets was underestimated.
The supermarket landscape is dominated by two chains, Foodstuffs, which owns Pak ’n Save and New World, and Countdown, which is owned by Australian supermarket Woolworths.
Massey University agribusiness Professor Hamish Gow said Government policy had helped shape a powerful duopoly.
A lack of competition had allowed supermarkets to push grower margins to the wall, while at the same time charging consumers too much, he said.
In 2001, the Commerce Commission allowed Woolworths to buy Progressive Enterprises, or Foodtown, reducing three players to two.
And earlier this year, the Government shut down independent retailers – butchers, grocers and fishmongers – during the Covid19 lockdown.
That power imbalance had not yet corrected, Gow said.
One grower who spoke on condition of anonymity, said that, in response to a request for amargin review, one supermarket increased the margin it took on the produce by 20 per cent.
Since the lockdown, supermarkets had become brazen, the grower said. ‘‘This year is the worst ever experienced for prices.’’
Summerfruit NZ chief executive Richard Palmer said handing supermarkets more power had only exacerbated the issue.
‘‘When you’re dealing with summer fruit it comes all on over three months. So you’re essentially a price taker. All the power and pricing is in one hand,’’ he said.
Intensive price monitoring between the supermarkets had led to grower margins being matched ‘‘within cents’’ of each other, the grower said.
‘‘It’s a race to the bottom. Somebody has to sort it out. That’s where they make their money, out of fresh produce, because they know we’ve got to sell it or dump it. It’s totally unscrupulous, unethical behaviour.’’
Research from the New Zealand Institute for Economic Research last year showed farmers on average took 20 per cent of the retail price of food in staple items like meat, eggs, dairy, fruit and vegetables.
And despite fluctuating food prices and the rising cost of labour, this cut has not changed in more than a decade.
Neither Foodstuffs nor Countdown would reveal their produce margins, citing commercial sensitivity.
Countdown made 5.3 cents in the dollar across all categories in the financial year ending June.
Coriolis director of food and supermarket expert Tim Morris said the margins for Foodstuffs would be similar.
Margins on produce might be higher than on other categories but supermarkets played with their pricing mix from different parts of their portfolio.
Supermarkets also make more gross margin on some items. Fruit and vegetables had higher associated costs than boxes of cereal or bags of rice, he said.
Last month, the Government ordered an inquiry into supermarket pricing to see if consumers are getting a fair deal. The year-long study will also examine the procurement practices of the major grocery retailers.
Countdown head of produce Grant Robinson rejected the suggestion supermarkets were making extramargin on fruit and vegetables because of Covid.
‘‘We have worked closely with our growers to support them during this uncertain year, including helping make sure that produce didn’t go to waste during lockdown,’’ he said.
Long-term relationships built on trust, transparency and fairness were essential for growing programmes that work with future seasons in mind, Robinson said.
Foodstuffs spokeswoman Antoinette Laird said it worked hard with its suppliers to deliver value that benefits the store, supplier and customer.
Morris said New Zealanders would be better off with a third player and sooner or later discounter Aldi would make its entrance.
The German chain, which brought competition to Australia’s supermarkets in 2001, has had a deflationary impact on supermarket prices.